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Old 2009-03-24
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Exclamation What Might Bankruptcy Mean For Me — And My Car?

NMA Article: What Might Bankruptcy Mean For Me — And My Car?


By Eric Peters, Automotive Columnist

If GM (or Chrysler) goes toes up, what will it mean for me if I own a GM (or otherwise in receivership) brand of car? How about brands croaked by a reorganizing automaker — like GM’s reportedly soon-not-to-be Pontiac and Saturn divisions? Would I be crazy to buy one of these, even if the deal is really sweet?

Let’s look at what may and could happen to the automakers — and what that would mean for you as an owner or prospective buyer:

There are two types of bankruptcy — Chapter 11 and Chapter 7. The first means the company will be reorganized, not necessarily disappeared. It’s a legally structured way for a company that can no longer pay its debts or continue doing “business as usual” to stay in business by making major in-house changes and possibly (if a court so decides) renegotiating prior contracts and obligations it has with (in the case of an automaker) unions, pensioners, suppliers, dealers and so on.

This appears to be the likely scenario for GM — at least for now.

While Chapter 11 could mean The End for some of GM’s struggling brands (like Pontiac and Saturn) and some dealerships might be closed, bought out or consolidated, GM would still exist and still be making cars — as well as service parts. Warranties and so on would be honored. There might be fewer dealerships in your area, but there will still be dealers available to service your GM car — and parts, too.

The upside to Chapter 11 is you won’t have to worry about being able to keep your car running. And — if you are a prospective buyer — it’s likely you’ll be able to get a deal on a new car you never thought possible. (Right now, even before any official declaration of bankruptcy, GM is massively discounting most of its vehicles, especially pick-ups and SUVs. Some of these you can buy for literally ten or even fifteen thousand off MSRP “sticker.”)

The downside is if you already own a GM branded car, its resale value will drop faster than a Yugo trying to jump the Grand Canyon the minute the Chapter 11 cat is let out of the bag. That $45,000 SUV you just took home might suddenly be worth half that. But as long as you’re not looking to trade-in or sell it anytime soon, this downside, at least, can be avoided altogether.

Ok, Chapter 7. This is the baddie — liquidation. It means the company ceases to exist and the corpse gets picked over by whoever wants a piece. Once the bones are cleaned, that’s it. Game over.

It’s less likely this fate will befall GM — which still has some viable products. But Chrysler is going down fast — and Chapter 7 is a very real possibility unless there is a dramatic turnaround or a very brave partner decides to step in and provide some desperately needed capital.

What does it mean for you? Nothing good. If Chrysler or any other automaker goes Chapter 7, that’s it. Not only does Chrysler disappear, so does the dealer and service parts replacement lifeline. Whatever parts have already been made and held back in inventory someplace may be all that’s left. Parts will get harder and harder to find — and get progressively more expensive as supplies dwindle.

Imagine owning a Packard or Hudson today and you will get the idea.

Also, the value of the soon-to-be-croaked automaker’s cars already in circulation will plummet like AIG stock as people realize finding parts for these cars and getting them fixed is going to become more and more challenging — and expensive. Also, your warranty may become as worthless as Confederate currency.

This is one reason why Chrysler’s sales are the worst of all the Big Three right now. It’s a feedback loop. Poor sales weaken Chrysler, edging it closer to the abyss. And the closer it gets to the abyss, the worse sales slide as people recoil at the prospect of buying a car from a company that might not be around next year.

But what about brands within brands — like Pontiac and Saturn, under GM’s umbrella? No need to worry. The cars sold by GM’s various divisions share common “platforms” — the basic chassis, as well as major drivetrain and other parts. This is why it’s still easy to get parts for Oldsmobiles — which have been gone since 2004.

So long as GM, itself, is still around, don’t worry about the status of GM brands. Heck, you can still get genuine GM parts for the Chevy Corvair — a car that hasn’t been made since 1969. And any GM dealer can service any brand of GM car. So even if Pontiac doesn’t exist next year, you’ll have no problem getting your car serviced. Same goes for other brands — such as Ford’s Mercury division, for instance.

And if GM announces that Pontiac, Saturn (or any other division) is going to be retired, that will be your cue to go shopping as the deals on remaining inventory will be tremendous.

So, while bankruptcy — either form — may not be happy news for the car companies, it might work out ok for you.

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